As boom fades, an East African mainstay looks to US

ByNorman Sklarewitz, Special to The Christian Science MonitorOctober 14, 1982

Nairobi, Kenya
— Stand on almost any corner in the heart of this East African capital and it is immediately apparent why it has earned the reputation as perhaps the most modern and progressive city in black Africa. Late-model private cars, taxis, and city buses flow along wide, tree-lined boulevards.

High-rise office and government buildings literally overshadow the quaint but anachronistic old British colonial structures. And even more are under construction in the commercial district around Koinage Street and Kenyatta Avenue.

With all this activity swirling about, it's hard to accept an appraisal heard almost universally in the foreign business community: ''The economy of Kenya is in desperate straits. It hasn't reached the crisis level yet, but it could soon.''

That's because in the past 18 months to two years, just about everything that could go wrong has. Admittedly some events, such as the world recession, skyrocketing oil prices, and a drastic drop in coffee prices, are beyond the control of the government. But the administration of President Daniel arap Moi is coming in for much of the blame.

Poor planning, widespread corruption, and faulty application of potentially sound policies by a generally lethargic civil service have all been cited for sending what had been a booming economy into the present nose dive. One foreign resident said, ''This government has flopped about for two years with its head in the sand. Now it is talking about taking remedial steps, but it may be too late.''

Few economic indicators offer any encouragement. The gross domestic product back in the 1970s had been increasing at an average of perhaps 7.5 percent a year. Buoyed by record-high coffee prices, the country was taking in enough foreign exchange that danger signals were barely noticed. Consumer goods were liberally imported and foreign exchange earned by Kenyan business interests was dissipated or tucked away abroad instead of being saved.

Kenya had previously been seen as the keystone in an East African Economic Community, able to sell its goods to less developed neighbors in the area while profiting from the receipt and transport of imports through its port of Mombasa to other African nations.

But then what had been hailed by some as ''Kenya's economic miracle'' came unglued. World coffee prices that hit about $44.34 a ton at today's rate of exchange plummeted by half, with demand also off. Tea, another important foreign exchange earner, was also hit by declines in price and demand. Even tourism, which had contributed significantly to the nation's currency holdings, failed to grow as the recession cut into the market for those able to afford safaris.

To restore order, the Moi government initiated a number of programs, including an effort to conserve rapidly dwindling foreign exchange reserves by initiating an import substitution program, a technique common among underdeveloped countries. Foreign experts argued unsuccessfully that the country instead should have set up labor-intensive industries that could compete with those in the Far East and the Indian subcontinent.

Instead, capital-intensive plants were set up to make such things as cosmetics and pharmaceuticals and to assemble vehicles. The whole idea backfired. With such a small domestic market and high start-up costs, the import substitution plants actually ended up consuming more foreign exchange than would have been involved if the products had continued to come in from overseas. ''Build Kenya, Buy Kenya'' was a motto, but little else.

At times, imported components and chemicals were taxed so heavily that the plants involved weren't able to maintain production.

The economic growth, once so promising, began to slide to where, at best, it is crawling along at anywhere from 1.5 percent to 2 percent. To make matters worse, the population continues to expand at 4 percent a year. No one really knows what the unemployment figures are in a land where much of the population lives in the bush under extremely primitive conditions, but figures ranging from 20 to 30 percent are given credence.

Inflation may be twice the 12 percent rate the government officially reports, but the Kenya shilling has been devalued by some 36 percent, to a much more realistic ratio against the US dollar. But the move, urged by the International Monetary Fund (IMF), has only worsened the country's ability to earn foreign exchange in anywhere near the levels needed.

In late September, in fact, foreign exchange reserves had fallen so low that the country's ability to make vital crude oil purchases overseas was threatened. No one knew for sure what the hard currency holdings were, but estimates ranged from as low as $130 million to a generous $200 million. At current levels of spending, that meant the country had enough money to keep going for only a month.

Kenya's only oil refinery, at Mombasa, actually shut down operations for the first time in its 10-year history because it no longer had crude oil to process. Reserve tanks were moving close to empty in the last week of September. Local filling stations were already out of diesel fuel, and if production wasn't started up soon, diesel to fuel the nation's railroad engines and trucks would be gone, literally bringing the nation's land transport system to a halt.

Pushed by these developments to the brink of bankruptcy, the government has turned to outsiders for help. In a few years, American economic aid has gone from only about $10 million a year to about $100 million. Nearly half of that goes to provide American foodstuffs, either in the form of outright grants or at extremely low interest rates. Ironically, it wasn't too long ago that Kenya not only was self-supporting in terms of agricultural products but exported its surplus.

The United States helps in other ways, too. It has more than 300 Peace Corps volunteers in Kenya, the largest contingent in Africa and second-largest group in the world (after the Philippines). A so-called Access Agreement, concluded during the Carter administration after the Soviet invasion of Afghanistan, now permits US warships to call at Mombasa, giving the American military a vital resupply point on the Indian Ocean. Sailors on shore leave are expected to spend as much as $10 million to $12 million a year.

Both the World Bank and the IMF have also increased their loan commitments to Kenya, in part to cover current needs but also to support medium- and long-term structural readjustments.